smartlink holdings ltd share price Management discussions

ECONOMIC OVERVIEW

According to the baseline projection of World Economic Outlook, growth will decline from 3.4% in 2022 to 2.84% in 2023 before levelling off at 3.0% in 2024. A particularly strong growth downturn, from 2.7% in 2022 to 1.3% in 2023, is predicted for advanced economies. A realistic alternative scenario with increased financial sector stress shows that by 2023, global GDP will have fallen to around 2.5%, with advanced economies growth falling below 1%. On the strength of decreasing commodity prices, global headline inflation is projected to decline from 8.7% in 2022 to 7.0% in 2023; however, underlying (core) inflation is likely to decline more slowly. In most circumstances, the restoration of inflation to target is unlikely to occur until 2025.

THE INDIAN ECONOMY

Recovering from pandemic-induced contraction, Russian-Ukraine conflict and inflation, the Indian economy is staging a broad-based recovery across sectors, positioning to ascend to the pre-pandemic growth path in FY23.

ECONOMIC SURVEY 2022-23 projects a baseline GDP growth of 6.5% in real terms in FY24.

Economy is expected to grow at 7% (in real terms) for the year ending March 2023, this follows an 8.7% growth in the previous financial year. India might witness GDP growth of 6.0% to 6.8% in 2023-24, depending on the trajectory of economic and political developments globally.

INDUSTRY OUTLOOK IN INDIA

The Indian Networking Industry

FICCIs latest Economic Outlook Survey puts forth an annual median GDP growth forecast for 2022-23 at 7.0%. The Industry and services sector are anticipated to grow by 6.2% and 7.8% respectively. There was a unanimous view among few economists that although the Indian economy is expected to face a slowdown in the near-to-medium term, it will still grow consistently to emerge as the fastest growing economy in the world. Slowdown in major economies, particularly in Indias major trade partners, is anticipated to impact exports from the country - which had cushioned GDP growth in the face of a lack of effective domestic demand.

According to International Data Corporation (IDC) Indias networking market, which includes Ethernet Switch, Routers, and WLAN segments, a very strong growth was exhibited due to rise in port shipments on a sequential basis, it was also driven by hyperscalers and cloud providers accompanied by robust demand from customers for popular applications and services and continued easing of component shortages and a reduction in supply chain disruptions. The overall Indian Networking Market saw a gradual growth due to vendors trying to clear their shipment backlogs.

High input costs were driven by semiconductor demand, logistics, fluctuating currency. However, the demand for networking equipment has not weakened and vendors have at least two-quarters of backlogs to clear. Despite the challenges like- delays in delivery, price increases, and a slowing global economy, the demand for networking equipment remains unscathed. However, more demand towards wireless technology is there owing to hybrid work and technologies like 5G expanding the edge. The market demand for network equipment is expected to remain strong despite the challenges the ecosystem is facing. The chip shortages are expected to remain at least till the first half of 2023. With the rising input costs, the prices of network equipment are also expected to remain volatile for the next few quarters. While 2023 certainly is expected to be a challenging

THE INDIAN NETWORKING MARKET IN 2022

(Values in USD million)

	Q1 2022		Q2 2022		Q3 2022		Q4 2022
Particulars	Value	Growth	Value	Growth	Value	Growth	Value	Growth
Ethernet Switch Market	151.5	12%	169.4	15%	199.3	28%	205.3	21%
Router Market	61.8	15%	83.7	3%	81.7	3%	91.7	22.10%
WLAN	63.6	9.09%	41.9	17%	51.8	14%	66.8	4%
Indian Networking Market		6.90%		2.90%		21.60%		18.25%

Source: "IDC WLAN AND LAN" tracker report year for all businesses, the demand for networking equipment would pull through considering the growth trajectory of India and the criticality of networks to achieve the desired results. Increased adoption of emerging technologies such as cloud, IoT, mobility, etc. would drive incremental revenues. IDC also expects large investments for 5G rollouts in the next couple of years.

To promote domestic manufacturing, PLI (Production Linked Incentive) Scheme, a government-initiated program was launched in 2021 financial budget that promotes domestic manufacturing in India while discouraging cheaper imports from other nations. The goal of this program was to give a financial impetus for increasing the sale of Indian made products, in turn developing local talent into world champions. The PLI scheme is helping all the Indian manufacturers.

BUSINESS OVERVIEW

SMARTLINK HOLDINGS LIMITED

Smartlink Holdings Ltd. has been in the Networking Products business for more than three decades and involved in sourcing, manufacturing, sales, marketing, and support. The Company has undertaken a restructuring exercise and now has two independent subsidiaries, namely, DIGISOL Systems Limited and SYNEGRA EMS Limited to grow the businesses in a focused manner using its expertise of over three decades. Smartlink Holdings Ltd. is now an NBFC with assets and cash investments which includes investment in the two subsidiary companies.

DIGISOL SYSTEMS LTD.

Telesmart is merged into Digisol Systems Ltd. which gives Digisol an added advantage of providing Sales, Marketing and Service Support through manufacturing a wide range of products viz: Structured Cabling and (SCS) ODM products to supply other brand companies. The product range includes- Solid Cable, Keystones, Patch Panels, Copper Patch Cord, Faceplates, Fiber Patch Cords, Fiber LIUs, Splitters etc. The company is also in the production of copper connection components with high bandwidth applications and the fiber range of products includes equipment for testing and assembly.

The IT networking industry grows by leaps and bounds every year; however, the one thing that stays comparatively constant is the brand. Due to the technology industrys accelerated evolution, brands take on increased importance by providing an effective counterbalance to what buyers perceive as constant change, clutter, and confusion. While we strive to push the boundaries with our marketing activities, we accord great importance to brand building, which will ensure our long-term success. DIGISOL has established its brand positioning as a ‘1st Indian Brand in IT Networking Solutions that offers products of global standards, credibility and delivers a fantastic user experience.

DIGISOL has carried out various initiatives like DIGISOL Cash Karo loyalty program to enhance the relationship with existing electricians, technicians and partners by giving them a chance to earn more loyalty points on their purchase of DIGISOL products, DITT (DIGISOL Institute of Technical Training) where we aim to train/educate network engineers, channel partners and ISPs by consistently delivering quality training programs which are always in sync with the market demand and DIGISOL Premium Partners Program to build relationships with the partners by rolling out various Sales Scheme for both Active and Passive range of products.

Active Networking Products

DIGISOL offers a wide range of active networking products with a portfolio encompassing over 200+ products across the IT networking spectrum. Marketed under the brand name DIGISOL, these products incorporate world class quality and are backed by Synegras own manufacturing facility and a nationwide distribution network. The Company offers call-based technical support backed by a strong in-house service team. DIGISOL has been steadily working towards introducing new products like Next Gen Wi-Fi-6 wireless products/solutions, SMB and SME 10G fiber networking switches, media converters and enterprise wireless products and a full range of FTTH Products based on the changing needs of the market. DIGISOL has introduced a new generation of Made in India products like XPON ONUs, EPON/ GPON OLTs, networking switches and enterprise wireless products. These also include products manufactured by the Groups manufacturing arm Synegra EMS.

Structured Cabling System (SCS)

DIGISOL cabling portfolio includes end-to-end cabling solution (Cat 5e, Cat 6 & Cat 6A), UTP/STP LAN Cables, Patch Panels/ Cords, I/O Faceplates. The fiber range includes Fiber cables, Fiber connectors, couplers, LIU, Fiber patch cords, Fiber Pigtails, etc. The Companys cabling products adhere to EIA/TIA, ISO/IEC and UL, ETL international standards. ROHS compliant products are backed by international 25 years product performance warranty with MADE IN INDIA PRODUCTS.

DIGISOL Enterprise SCS range

Technology is rapidly evolving and along with it the needs of business. With the latest technologies like 5G, IoT, Wi-Fi 6, SDN and Cloud coming in and with large connectivity sites like SMART CITY, there is a need for high speed and high-quality products. DIGISOL launched the ConvergeX series Future Ready Structured Cabling Solution under its New DIGISOL Enterprise structured cabling system. The DIGISOL ConvergeX range is ideal for such applications with POE connectivity. The ConvergeX enterprise structured cabling series aims to enhance the way enterprises work and unlock immense opportunities for the future.

DIGISOL Channel SCS range

The range of Digisol & Telesmarts Passive Networking products includes Copper, Fiber and FTTH solutions. All DIGISOL SCS Products adhere to EIA/TIA, ISO/IEC, and UL international standards. These RoHS compliant products are backed by 25 years international product warranty for performance. With its strong presence in SMB & Enterprise segments, DIGISOL works closely with regional and national system integrators for enhanced presence in large scale projects. DIGISOLs Structured Cabling Systems fulfil the network connectivity needs of medium to small businesses and home networks.

Brand Building: The key to DIGISOLs success

Brand building has always been accorded top priority at DIGISOL. While it is important to provide finest quality products of the latest technology, the way in which the consumer perceives the brand is equally important, especially from the long-term perspective. DIGISOL will continue to invest in educating the channel community, system integrators and large base of Electrician / Installers who interact with the end consumers and play a strong role in building the brand. The Companys brand building efforts also include participation in the leading industry events, trade shows and expos and inshop branding. In addition to traditional advertising in India, DIGISOL is active in the Digital space with an engaging website www.digisol.com and has a vibrant presence on social media platforms like Facebook, LinkedIn, Instagram and Twitter with strong content marketing. Our unique distribution system comprises of exclusive regional distributors to address the Channel and Enterprise segments. This ensures extensive reach and easy availability of all our products and solutions throughout the country.

DIGICARE

Digicare is a service arm of DIGISOL Systems which offers a new standard in integrated after-sales service and support to deliver total customer satisfaction. The company has specialized in providing After Sales Service solutions to IT over the decade in Telecom, Consumer Electronics and Consumer Durable products and technical support (Voice / Non-Voice). It offers a wide range of services such as call centre service, Return material assurance, backend repair & refurbishing services, supply chain support, warehousing support, and field services with a strong presence across India (62 service centres) with 27000 pin code coverage. The company is associated with world leading companies in the semiconductor, robotic and consumer electronics industry and has been serving for 25 plus years.

SYNEGRA EMS LIMITED

Synegra is a wholly owned manufacturing subsidiary of Smartlink Holdings Limited. Synegra has large, certified manufacturing facilities in Goa which include 2 SMT lines (recently upgraded 1 new SMT line, soldering lines, assembly & testing lines. It manufactures all kinds of products – from PCB assemblies like to the latest FTTH and Wi-Fi products, Telecom products, Electric vehicles and Defense applications products. SYNEGRA sources detail parts from local suppliers as well as from well-known companies worldwide. Synegra EMS Ltd is an Electronics Manufacturing Services (EMS) Company with a highly skilled team for electronics manufacturing including components sourcing for over three decades. It also provides contract manufacturing services to DIGISOL SYSTEMS LTD. as well as other electronics brands and companies. Synegra has widened its activities by venturing into the manufacturing of Chargers for Electric Vehicles. It anticipates steady growth with its manufacturing capacity suited for both export as well as domestic markets under the Make in India initiative of the Government of India.

FINANCIAL PERFORMANCE

i) Standalone Financials:

In the financial year 2022-23, the Company achieved an Revenue from operations of INR 954.49 lakhs as compared to INR 909.37 lakhs in the previous year. The Companys Profit after Tax for the year ending March 31, 2023 was INR 1,774.08 lakhs as compared to profit after tax of INR 2,895.35 lakhs in the previous year.

ii) Consolidated Financials:

In the financial year 2022-23, the group achieved an Revenue from operations of INR 16,305.26 lakhs as compared to INR 7,950.18 lakhs in the previous year.

Key Financials Ratio:

Particulars	FY 2023	FY 2022
Current Ratio (in %)	40.12	52.48
Operating profit Margin (in %)*	12.66	82.13
Net Profit Margin (in %)	160.52	77.64
Return on Net Worth (in %)	8.83	15.81
*excluding exceptional items

HUMAN RESOURCES

Smartlink and its subsidiaries are striving to build and maintain a positive employee experience with high satisfaction and quality of life, so that employees can contribute their best efforts to their work. We are as a progressive organization are conscious of our societal, organizational, and human goals and our human values form the backbone of our organization.

Our Values at work

Ethical and Integrity based approach in everything we do

Value and develop employees for Talent, Initiative and

Leadership

Employee motivation through ownership and empowerment Performance and collaboration Customer Orientation and delight

Our vision has been to create a committed workforce through Shaping talent management around skills, knowledge sharing practices based upon our value system. The key element of our Human Resource strategy to Drive HR innovations to create people culture, and productivity accelerators through a hybrid work culture embedded with employee experience and wellness.

As on March 31, 2023, the Smartlink Group has 200+ employees. Smartlink s future success evolves around our ability to attract top talent, retain, and motivate highly qualified technical and management personnel, to approach the VUCA world.

RISK FACTORS

Smartlink invests its surplus in various financial instruments like mutual fund, bonds, non-convertible debentures and other securities and thus Smartlink is exposed to credit risk, market risk and interest rate risk.

The risk of technological obsolescence is very high in the segments where the companys subsidiaries operate. Moreover, the technological advancements are dictated by the large OEM players. On the other hand, we need to continuously invest to keep launching new products to enhance reach and reputation amongst customers and channel partners. The companys subsidiaries are exposed to fluctuations in foreign exchange rate, in particular the movement of US dollar vis-?-vis the Indian Rupee as the subsidiaries import more than 60% of the components here the payment is in US Dollars. The fluctuation in interest rates and foreign exchange rates pose a risk to the competitiveness and pricing ability of the company. In todays constantly changing markets, companies may opt to maintain and grow sales by selling at competitive prices. Products have become commoditized over time as alternative products become available or the number of suppliers offering the same product increases

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACIES

Smartlink has aligned its current systems of internal financial control with the requirement of Companies Act, 2013. The Internal Control framework is intended to increase transparency and accountability in an organisations process of designing and implementing a system of internal control. The framework requires the Company to identify and analyse risks and manage appropriate responses. The Company has successfully laid down the framework and ensured its effectiveness. Smartlinks internal controls are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorization and ensuring compliance of corporate policies.

The Audit Committee periodically reviews the functions of Internal Audit

Our management assessed the effectiveness of the Companys internal control over financial reporting (as defined in Clause 17 of SEBI Listing Regulations 2015) as of March 31, 2023. Based on its evaluation (as defined in section 177 of Companies Act 2013 and Regulation 18 of SEBI Listing Regulations 2015), our audit committee has concluded that, as of March 31, 2023, our internal financial controls were adequate and operating effectively.

DISCLAIMER

Certain statements made in this report relating to the Companys objectives, projections, outlook, estimates, etc. may constitute ‘forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such estimates or projections etc., whether expressed or implied. Several factors including but not limited to economic conditions affecting demand and supply, government regulations and taxation, input prices, exchange rate fluctuation, etc. over which the Company does not have any direct control, can make a significant difference to the Companys operations. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue reliance on any forward-looking statements. The MD&A should be read in conjunction with the Companys financial statements included herein and the notes thereto.